On the upside, it would stop the drip-drip-drip of asset meltdown the banks and the Treasury Dept. have been dealing with since October – with no end in sight.

“If you took a nationalization policy, you would at least create some degree of certainty because now you know the government is going to stand behind these institutions,” said Kevin Jacques, 49, a former economist with the Treasury Department.

As it stands now, “it’s almost like some kind of weird partial nationalization,” Jacques said.

For instance, the government took management steps at both Citigroup and Bank of America when it forced the banks to slash their dividends to a penny.

Moreover, there are 318 banking institutions right now receiving government assistance to prop up their balance sheets, and 8,000 firms in the US banking industry overall.

The trillion dollar question: How many of them would fall under the nationalization plan?

The “bad bank” plan poses a difficult problem for the Feds, as they would have to carefully determine the proper price to place on the eroding assets.

Pay too much for the toxic mortgage securities and taxpayers will never be able to profit on the deal – and may even have to eat losses if mortgages don’t come back to the original levels.

Pay too little and hundreds of banks will have to write down their assets, requiring them to raise even more capital.

As Treasury Secretary-designate Tim Geithner said during his confirmation hearing Wednesday, “The good bank/bad bank-type solution has been present as the solution to most financial crises around the world, and it is very important that you look carefully that they are going to be as effective in this context as they have been in some past cases,” he testified before the Senate Finance Committee.

“The [pricing toxic paper] is enormously complicated to get right,” Geithner said. “We want to be very careful, not just that we are using the taxpayer’s money most effectively … but also that we do these in ways where the taxpayer and the government understands the risks we’re taking.”

If the administration stays with former Treasury chief Hank Paulson’s idea of injecting capital to prop up the bank’s balance sheets, then the economy will continue to deteriorate under the current credit crunch.

“The capital injections haven’t worked,” said Edward Yardeni, an independent market analyst. “It’s been like giving blood thinner to a patient who needs to have their wounds clotted. The bleeding hasn’t stopped.”

With a little over $350 billion already infused into the banking industry through TARP and countless billions through the Fed, many see the cash having little benefit for the economy. Plus, some Wall Street firms have estimated that it will take $3 trillion to right the banks.

“The size of the problem is growing faster than the banks’ ability to handle it,” said Joe Battipaglia, market strategist at Stifel Nicolaus.

“We’re halfway through the bailout money, and the banks are in worse shape than they were six months ago.”